Men, Women and Investing
Does your gender influence how you manage your money?
The memorable title of John Gray’s best-seller Men Are from Mars, Women Are from Venus makes a key point: the genders approach relationships differently. But is the same true for how men and women invest?
An essential step to becoming a better investor is knowing yourself – your fears, biases and motivations – and how they impact the decisions you make with your money. That includes recognizing when gender-related traits could be at work.
How men and women invest: what the research says
Numerous studies share the conclusion that men and women handle investing differently. It isn’t to say all women act the same, or all men share the same attitudes. It’s also unclear how socioeconomic variables like employment, income or education come into play. What’s important is understanding that gender-related tendencies shouldn’t be overlooked when examining your own investment behaviour.
1. Men embrace risk, women safety
Most studies agree men show a greater appetite for risk when investing, including a recent BlueShore Financial survey1 where 49% of men reported owning stocks versus only 31% of women. Research from BMO2 found men were nearly twice as likely to describe themselves as aggressive investors.
Women, on the other hand, generally avoid taking on more risk, even when it offers a chance at higher returns. An LPL Financial study3 concluded that, for women, achieving financial peace of mind was over seven times more important than accumulating wealth, drawing them to the security of guaranteed investments and savings products.
2. Men highly engaged in investing; women focused on day-to-day money management
In their financial affairs men prioritize acquiring and retaining wealth, which could be behind why they tend to give investing the most attention. Women cast a wider net, more frequently taking the lead in areas like day-to-day banking and household budgeting. In the BlueShore Financial survey1 66% of women manage the day-to-day banking versus 53% of men.
Like hockey or football, for many men investing’s a sport. Portfolio performance is a way to keep score. According to BlackRock’s Global Investor Pulse Survey4, men are nearly twice as likely to report enjoyment from investing, describing it as a “hopeful” and “optimistic” endeavour. Conversely, women were far less likely to think of themselves as investors, perceiving investing as a “risky” activity which made them “nervous”. This difference in engagement may be one reason why men tend to start saving for retirement at an earlier age. In the BlueShore Financial survey1 24% of men consider investing a hobby or a source of enjoyment; only a small fraction (3%) of women do!
3. Men swayed by overconfidence
In surveys, including BlueShore’s study1, women repeatedly report feeling less confident when investing than men, perhaps because they’re also inclined to believe they’re less knowledgeable. But for men, having greater confidence has a down side. Studies say men can take self-belief too far, leading them to attempt to time the market or fill their portfolios with too many risky investments. What’s more, they can fall victim to confirmation bias, filtering out information that conflicts with their own views, even when being more open-minded would be beneficial.
Women are less likely to think they know more than they do, so they’re less prone to gambling with their savings. And, because women tend to do their homework and collaborate with others, like a spouse or financial advisor, before making financial decisions, there’s less chance they’ll act impulsively.
4. Women stick to the plan, look to the long-term
In their drive to have their portfolios outperform, men often emphasize short-term results. Women behave differently. They’re generally patient investors who stay committed to their plan, keeping their eyes on their long-term goals.
Data from investment firm Betterment5 showed the firm’s female clients changed asset allocation 20% less frequently and monitored their accounts 45% less often than male customers. Men were also six times more likely to make dramatic shifts in asset allocation, like switching from all stocks to all bonds. Vanguard’s6 research into investor behaviour during the financial crisis found women were less likely to overreact and did not abandon equities as readily.
What are the implications?
For men, being highly engaged by starting early, saving aggressively and showing a willingness to embrace growth-oriented investments, can give them a leg up on building ample portfolios over time. However, men also display tendencies which can undermine their results from chasing performance and trading excessively, to failing to remedy mistakes.
If the issues facing male investors are frequently tied to carrying too much risk, for women, the danger is having too little.
Favouring safe – but low-growth – investments can cut into long-term returns, limiting the potential to create adequate savings for retirement or other needs.
On average, women in Canada live longer than men, meaning their wealth has to stretch further in later life. At the same time, women may earn less than their male counterparts during their working lives. Often, they have fewer years to build pensions and other savings because they are more likely to interrupt their careers, for example, to raise children or care for aging parents.
For women who outlive their partners, the situation can be more complicated. Poor health can deplete a couple’s savings too soon. And, as survivors, they’re frequently thrust into the role of managing the family’s legacy, even when they feel ill-prepared to do so.
What you can do
Recognizing your negative biases and behaviours when you invest doesn’t mean you’re stuck with them. Whether male or female, there are steps you can take to overcome those issues which are holding you back from becoming a better investor.
1. Boost your savings
If you’ve delayed getting serious about investing, either by choice or circumstance, it’s never too late to do more.
Putting away even a small portion of your income on a regular basis keeps your savings growing. Those savings can build faster when sheltered from tax through an RRSP or Tax-Free Savings Account. The earlier you start, the more time there is to let compounding do its work.
Say at age 30 you begin putting $1,000 annually into a TFSA, earning 5%. You’ll have over $50,000 saved by age 55. But, if you wait until age 45 to get started, assuming the same rate of return, you’ll have to raise your yearly contribution nearly four-fold to $3,800 to accumulate the same nest egg.
2. Right-size your risk level
Zeroing in on the appropriate level of risk for your portfolio is a balancing act. You’ll want exposure to growth investments, namely equities, to help you reach your savings goals and stay ahead of inflation, including throughout retirement. But remember, stocks can be more volatile in the short-term than traditionally stable assets like bonds, so it’s important to maintain an equity weighting that makes sense for your timeframe.
Having the right asset allocation is about structuring a well-diversified and properly balanced combination of equities, fixed income and cash that helps you achieve your objectives while letting you sleep at night.
3. Schedule regular reviews
Constantly monitoring your portfolio is never a good thing. It can cause you to overreact to swings in financial markets and sell, or buy, investments you shouldn’t. You might even wind up abandoning a well-thought-out strategy prematurely.
Instead, follow a disciplined approach. Scheduling regular reviews, say quarterly or annually, gives you ongoing opportunities to rebalance your portfolio and manage risk more effectively.
4. Put it in writing
Committing to your investment goals and other financial objectives in writing improves your odds of staying on course and achieving the results you want.
According to the Financial Planning Standards Council7, 81% of people with a comprehensive financial plan feel they’re on track with their financial affairs, versus 73% with limited planning and only 44% with no planning.
5. Partner with an expert
Building a solid financial plan is a major benefit of working with a financial advisor. An advisor helps you figure out what you want to accomplish and gives you the support you’ll need to get there, whether it’s saving for a child’s education, creating sustainable retirement income or managing a legacy. And, they’ll be there to adjust your plan as your circumstances or goals change.
An advisor can be a sounding board for ideas, offering a valuable second opinion – before you act. At the same time, they’ll help you avoid getting caught up in the euphoria or fear surrounding financial markets which can cloud your decision-making.
You can direct your investments more effectively by working with your advisor and if desired, an investment specialist to create an investment policy statement, incorporating details like your investment targets, asset allocation and tax-reduction strategies, as well as outlining how you’ll evaluate your progress.
Ready to get on the path to better investing? Speak with us today for a thorough review of your finances.